Key steps for incorporating in South Korea

Increasing complexity

While South Korea represents opportunity for outside investors, the country’s complexity ranking rose in our 2021 Global Business Complexity Index. It is now placed just outside the top ten most complex jurisdictions in 11th place - a rise in complexity compared to its ranking of 17th in 2020.  

South Korea implemented new labour laws in 2018, in a bid to address the country’s workaholic culture. While aiming to improve the quality of life for employees, these additional regulations also served to increase the compliance burden for employers. The laws increased minimum wage by up to 30%, reduced working hours from a maximum of 80 hours to 52 hours per week, and added to mandatory annual leave and paid public holidays.

South Korea was able to mitigate the economic impacts of the Covid-19 pandemic, thanks in part to a surge in demand for semiconductors and consumer electronics, to which the country was well positioned to respond. However, the country has been impacted by the global slowdown of exports. In addition, many companies have experienced delays when apostilling documents during incorporation.

Overall, given that South Korea can be a complex jurisdiction in which to do business, investors seeking to enter this market should be aware of some of the unique aspects of incorporating in the country. We take a closer look at some of these here.

Types of entities in South Korea

Before incorporating a business in South Korea, it is important to understand the different types of business entities that are available. The most common types of business entities are:

• Joint-stock company (JSC)
• Limited company (LC)
• Limited liability company (LLC)
• Branch office of a foreign company
• Representative office

Obtaining permissions

In South Korea, obtaining permissions – including licenses, registration, report de-facto approval by the governmental authorities – may be required by industry-specific regulations. Unlike some jurisdictions, obtaining permissions is not a post-incorporation process but is a part of the incorporation process of a foreign-invested company (see step 3 in the timetable below, if applicable).

Therefore, legal research and counsel from a third-party law firm might be necessary depending on the prospective business activities of a company in advance of commencing the incorporation process.

Failing to conduct proper legal research in advance of incorporation may result in serious consequences. Uber provides one famous example of what can happen when falling foul of the rules, as its business was deemed to be illegal in accordance with Korea’s Passenger Transport Service Act.

Incorporation can typically be completed within two to three weeks upon preparation of required documents – except in cases where additional permissions are required, in which case a third step is added often resulting in significant delays.

There is no local director requirement, except in the construction industry.

While South Korea is a technologically advanced society, the incorporation process still requires an in-person presence for certain processes and documents must be notarised and apostilled.

Step 1 – Foreign Investment Report under FIPL (Foreign Investment Promotion Act) & Subscription to Shares

• Report that a foreign investor will incorporate in Korea to the foreign exchange
• Minimum paid-in capital: KRW 100,000,000 (appx. US$90,000); no minimum capital requirement for branch or representative offices
• Remittance of the funds wired into a sundry account; after incorporation, the funds will be remitted to the company’s local bank account

Timeframe: 2-3 working days

Step 2 – Preparation of Documents & Court Registration for Incorporation with the Court

Report of Corporate Seal by the representative director making the seal official

Timeframe: 3-5 working days

(If applicable) Step 3 – Obtaining Permission

• If required by the specific regulations governing the industry; if not, then this step may be skipped

Timeframe: to be determined

Step 3 (or 4) – Tax Registration with the Tax Office

• VAT/CIT/WHT number
• E-Tax invoice

Timeframe: 2-4 working days

Step 4 (or 5) – Registration of a Foreign Invested Enterprise with the Delegated Financial Institution (????)

• Complete the bank account process with a local bank

Timeframe: 1-2 days

The incorporation process in South Korea is fairly straightforward. However, foreign investors are advised to seek legal counsel regarding any obtaining permission requirements. Also, preparing all documentation in advance will ensure a smoother application process.

TMF Korea

TMF Group established its office in South Korea in 2012 with a strong team of specialists to assist its clients with their investments, both local and global. Our team provides accounting, corporate secretarial, HR and payroll services to help you reduce risks, maintain compliance, better control your costs and simplify your operations.

Contact our experts today to find out how we can help you grow your business.